'Red flags' caused alarm for Stanford investors

MARY FLOOD, Copyright 2009 Houston Chronicle |
February 19, 2009

Former Stanford Financial executives D. Mark Tidwell, left, and Charles Rawl were thanked by customers for steering them clear of what they considered to be improper investments.

While many investors in Stanford Financial Group panicked this week when regulators froze its assets, two former Stanford brokers were hearing from clients who were relieved because they got out in time. “Callers have said ‘thank you, thank you and thank you very much,’ ’’ D. Mark Tidwell said Wednesday. Tidwell and Charles “Charlie’’ Rawl left the company in late 2007 and took many of their clients with them, largely pulling them out of the Stanford financial products the federal government froze as part of a fraud investigation. Tidwell and Rawl allege in a lawsuit filed in January 2008 that they were forced to resign from Stanford because they did not want to engage in business practices they thought improper — some of which also were alleged in Tuesday’s civil fraud claim by the Securities and Exchange Commission. “I saw a pattern of management making decisions for the wrong reasons, not focusing on what was best for the client,” said Rawl, 49, of Katy, who worked at UBS before he was recruited by Stanford in 2005. “I saw an environment of noncompliance. Things that were brought up were not fixed.”

Began in 2004

Tidwell, 40, of Spring was recruited by Stanford in 2004 from Merrill Lynch. Both brokers left the major financial firms, taking many of their clients, because they were attracted by a smaller, independent company. They became gradually, and then alarmingly, disillusioned at the new job. “Red flags began to fly,” Tidwell said. In 2005, the pair said, holders of certificates of deposit in Stanford’s offshore bank started receiving letters from the SEC questioning the investors about the marketing of the CDs. Tidwell and Rawl said the company offered bonuses and other incentives for pushing those CDs to customers. In 2006 they started noticing that a mutual fund called Stanford Allocation Strategy was advertising better performance than clients were seeing. Also that year they were told to scrub their files, removing handwritten notes and other items, they said. And they noticed that the company’s trust company in Baton Rouge was not filing certain required federal documents. Rawl was especially disturbed when supervisors said “let sleeping dogs lie” rather than deal with or reveal serious problems. The two said they started telling their clients about the problems and felt compelled to leave in December 2007.

Suit, countersuit

Stanford sued the pair, alleging they were fired and owed Stanford more than $500,000 in unpaid promissory notes. Tidwell and Rawl countersued Stanford, saying they were forced to quit because of improper behavior at the company. The lawsuits are now in arbitration. Stanford spokesmen have blamed Tidwell and Rawl for stirring up a hornet’s nest and changing a routine SEC investigation into a deep federal look at the company. Tidwell and Rawl, who now run Zenith Wealth Management together, were subpoenaed and interviewed by SEC agents last year. Their attorney, Mike O’Brien, said Wednesday that he still hopes his clients can collect from Stanford and that all the investors get their money back as well. Tidwell and Rawl said the SEC action was a relief for them on one level but it also is tragic, because many honest investors may lose money. “One of my clients called yesterday crying. She was apologetic,” Tidwell said. He said she didn’t pull out of Stanford when he left and suggested she do so. mary.flood@chron.com